Gold has lost its safe-haven bid for a second time since the Middle East conflict erupted, with the metal sliding toward $4,500 as renewed US-Iran hostilities fuel inflation fears that strengthen the case for Federal Reserve tightening.
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Gold slides toward $4,500 as US-Iran tensions and Fed bets collide
Gold has lost its safe-haven bid for a second time since the Middle East conflict erupted, with the metal sliding toward $4,500 as renewed US-Iran hostilities fuel inflation fears that strengthen the case for Federal Reserve tightening.
Gold traded near $4,537 an ounce on Tuesday, down from an intraday high of $4,560, after the US conducted what it called defensive strikes in southern Iran — a move Tehran labeled a "gross violation" of the seven-week-old ceasefire. The escalation threatens to prolong the blockade of the Strait of Hormuz, a chokepoint that handles about 21 percent of global oil trade, and has pushed Brent crude above $97 a barrel.
"The market is caught between two opposing forces — geopolitical risk that should support gold, and the inflation shock from that same risk that forces central banks to stay hawkish," said Elena Fischer, geopolitical risk analyst at Edgen. "Until one force clearly dominates, gold is stuck in a range with a bearish bias."
The metal has traced a volatile path since the conflict began Feb. 28. It surged to a record $5,420 on safe-haven demand, then collapsed to $4,345 by March 23 as investors realized the Strait of Hormuz closure would accelerate inflation and keep interest rates elevated. A recovery to $4,890 in April fizzled after hawkish commentary from the Reserve Bank of Australia — which raised rates three times — and the European Central Bank, where markets now price two additional hikes by year-end. Gold has since settled near the $4,500 zone, a level it has tested repeatedly in recent sessions.
Rate-hike bets harden as inflation data runs hot
The Federal Reserve is at the center of gold's dilemma. Fed funds futures fully price a 25-basis-point rate increase by March 2027, with an 80 percent probability of a move before the end of 2026. That timeline has shifted forward after April's consumer price index and producer price index both came in above consensus, with headline PPI surging to 6 percent.
The hawkish repricing carries added significance because Kevin Warsh, appointed by President Donald Trump on the expectation he would be more dovish than predecessor Jerome Powell, now faces an inflationary environment that may force his hand. Powell is expected to remain on the Fed board as a governor, and his hawkish views could translate into rate-hike votes. A move in September — Warsh's third meeting — is seen as the earliest realistic window, with June and July considered too soon for a new chair to tighten.
Higher Treasury yields have increased gold's opportunity cost, eroding its appeal as a non-yielding asset. The US 10-year yield stood at 4.50 percent on Tuesday, down 1.5 percent on the session but still near levels that have historically pressured gold.
Central bank buying provides a floor — for now
One factor limiting gold's downside is continued demand from official institutions. The World Gold Council reported that central bank purchases rose 17 percent in the first quarter of 2026 compared with the fourth quarter of 2025, reflecting ongoing de-dollarization efforts by nations seeking to reduce exposure to the US economy. This institutional bid has helped gold hold above $4,500 even as speculative positioning has turned bearish.
But the support may prove fragile if inflation data continues to run hot. The last time the PPI exceeded 6 percent was in 2023, when gold traded below $2,000. If producer price pressures feed through to consumer prices in the months ahead — a lag that typically takes three to six months — the Fed could face pressure to act sooner than markets currently expect.
What happens next depends on Hormuz
The immediate catalyst for gold's next move is the Strait of Hormuz. If the US and Iran reach a durable agreement that restores shipping through the waterway, oil prices could retreat sharply, easing inflation fears and allowing the Fed to maintain a dovish posture. In that scenario, gold could reclaim the $4,770 resistance level and target $4,890, with a break above that opening a path toward $5,200.
If the blockade persists or escalates, oil-driven inflation will keep rate-hike bets elevated, and a decisive break below $4,500 could open the door to a test of the March low at $4,345, and potentially $4,100 beyond that. The 200-day exponential moving average sits near $4,345, offering a technical floor that has held since the conflict began.
For now, gold traders are pricing a geopolitical risk premium that is being offset by monetary policy expectations — a tug-of-war that has left the metal range-bound at levels that would have been unthinkably high before 2025, but that now feel like a precarious middle ground.
This article is for informational purposes only and does not constitute investment advice.
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